The global deficit on goods unexpectedly widened again in July. From an unrevised £18.89 billion in June, the shortfall rose to fully £20.00 billion, well above the market consensus and the largest since April. The deterioration reflected a hefty 10.8 percent monthly slump in exports, mainly due to weaker sales of chemicals, that more than offset a 4.6 percent drop in imports.

The deficit with the EU widened from £11.44 billion to £12.50 billion as a 10.8 percent slide in exports easily eclipsed a 2.3 percent fall in imports. However, with the rest of the world, the shortfall was essentially unchanged at £7.50 billion with exports also down 10.8 percent and imports off 7.2 percent.

The monthly trade data remain extremely volatile but recent reports suggest that the underlying trend is worsening and the third quarter looks set to record another sizeable deficit. Today's releases put the UK RPI at minus 9 and the RPI-P at minus 15 meaning that in general, economic activity is falling slightly short of market forecasts.

The trade deficit is seen at £18.0 billion, a modest improvement on June's surprisingly large £18.89 billion shortfall.

The merchandise trade balance measures the difference between imports and exports of goods. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade and can offer a guide to an economy's competitiveness. Data are supplied by over 30 sources including several administrative sources, HM Revenue and Customs (HMRC) being the largest.

Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect currency values in foreign exchange markets.

Imports indicate demand for foreign goods and services in the UK. Exports show the demand for UK goods in countries overseas. The pound sterling can be particularly sensitive to changes in the trade deficit run by the United Kingdom, since the trade shortfalls create greater net demand for foreign currencies. The bond market is also sensitive to the risk of importing inflation. This report gives a breakdown of trade with major countries as well, so it can be instructive for investors who are interested in diversifying globally. For example, a trend of accelerating exports to a particular country might signal economic strength and investment opportunities in that country.

The UK's trade balance is particularly susceptible to swings in the oil account and so within the overall goods balance, financial markets will normally focus on the balance excluding oil and other erratic items.